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Thursday, August 27, 2009

An udpdate on the media's housing bottom. The chart below shows subprime loan resets ending and never to return:

The next update shows us where we are in the real world. The chart below shows the Option A loan reset/explosive time bombs set to detonate:

Supply of homes on the market has now fallen to 7.5 months, again showing signs of a housing bottom. However, what is not accounted for is the foreclosure inventory sitting on the banks books because they do not want to take their write downs:

Monday, August 24, 2009

I haven't commented on the town hall meetings happening right now because the footage you have seen speaks for itself. I did want to post this one that I came across this evening.

What many politicians do not realize today is that the baby boomers are not babies anymore. They no longer look up to these men in awe as they rob them of their wealth right in front of their eyes.

These town hall meetings are the first chance the public has had to speak out since the financial "bail out" and the pretend stimulus that was crammed down the throat of Congress overnight.

While these town halls meetings are being down played by all media outlets, they represent a significant new movement of anger moving forward.

As Obama and Congress bail out the financial institutions that led their campaign contributions, and they create spending "stimulus" bills that are payment plans toward other campaign contributors, the now grown up baby boomers are starting to take notice.

Breaking news tonight comes from President Obama who has decided to re-appoint Ben Bernanke for another term as Federal Reserve chairman.

This decision has all but sealed the fate for America as Bernanke has clearly laid out his calculated plan to destroy our economy with an ocean of printed money ready to wash away any hope of future prosperity.

Much, much, more to come on this landmark decision and its implications on our future.

The P/E of a stock is a ratio used to determine how expensive a stock is, and it is formulated by dividing the price of a stock by the earnings of the company.

If a P/E ratio is high the stock is considered expensive. If it is low it is considered a bargain. Historically when stocks were in the 7-10 range they have been considered cheap and that point usually marked the end of a bear market cycle.

On the other hand, during the absolute mania stage of the stock market bubble in March of 2000, the P/E ratio reached 52. This was the highest on record and marked a point of lunacy for new buyers purchasing shares.

During the stock market collapse from October 2008 - March 2009, the P/E ratio bottomed out at around 18. This was still considered expensive in historical terms. Since that bottom in the S&P 500 of 666 on March 6th, the market has rallied about 50% and has rocketed straight upward without a pull back. The following chart shows stocks current P/E ratio with this most recent move:

We are currently sitting at a P/E ratio of 129.

This has occurred because company earnings have collapsed across the board at a time when stock prices are exploding upward. (Become more expensive)

Can the P/E ratio go higher from here? Absolutely, and it probably will. Would I bet my money on it? No thank you. I'd rather play Russian Roulette.

While the P/E ratio is a gauge of market fundamentals, the daily sentiment index is a gauge of where the market may be heading from a technical perspective.

The following is a chart of the S&P 500 from October of 2007 through today. The important line is the one below the index which shows the sentiment of traders over the past two years. At the market's all time high the sentiment index touched 88%. This means that at that point 88% of market participants thought the market was going higher: they were bullish.

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This afternoon that index crossed 89%, the extreme reached during the October 2007 high. Technical traders use these tools to determine points when the market is most vulnerable for a turn.

(To understand why think about this example: If 90% of the market is bullish then they have already invested their capital in stocks. They now have no capital to push the market higher because they have already invested it. The short sellers at this point can push the market downward against little resistance from upside pressure.)

As discussed above, this does not mean the market has reached a top. The sentiment index can reach 99% bulls and push the market even higher. (A 99% bullish sentiment level was reached last October in the bond market during the rush to safety in treasury bonds)

"We should be careful to get out of an experience only the wisdom that is in it and stop there lest we be like the cat that sits down on a hot stove lid. She will never sit down on a hot stove lid again and but she will never sit down on a cold one either."

- Mark Twain

"It's waiting that helps you as an investor, and a lot of people just can't stand to wait."

- Charlie Munger

"Live as if you were to die tomorrow. Learn as if you were to live forever."

- Gandhi

"One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do. I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up. I wait for a situation that is like the proverbial shooting fish in a barrel."

- Jim Rogers

"Capitalism without financial failure is not capitalism at all, but a kind of socialism for the rich."

- James Grant

"At this juncture, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained."

- Ben Bernanke, March 2007

"Everything that needs to be said has already been said. But since no one was listening, everything must be said again."

- Andre Gide

"When people are getting richer and richer but they're not actually producing anything, it can't end well."

- Louis CK

"In economics things take longer to happen than you think they will, and then they happen faster than you thought they could."

- Rudiger Dornbusch

"I don't write about what I know. I write to find out what I know."

- Patricia Hampl

"Chains of habit are too light to be felt until they are too heavy to be broken."

- Warren Buffett

"Everyone has a plan until they get punched in the mouth."

- Mike Tyson

"Interest on the debt grows without rain."

- Yiddish Proverb

"You can have comfort, or you can have value. You cannot have both."

- Jim Grant

"Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful."

- Warren Buffett

"No very deep knowledge of economics is usually needed for grasping the immediate effects of a measure; but the task of economics is to foretell the remoter effects, and so to allow us to avoid such acts as attempt to remedy a present ill by sowing the seeds of a much greater ill for the future."

- Ludwig von Mises

"Men who can both be right and sit tight are uncommon."

- Jesse Livermore

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.

-Ludwig von Mises

"Most investors think quality, as opposed to price, is the determinant of whether something's risky. But high quality assets can be risky, and low quality assets can be safe. It's just a matter of the price paid for them."

- Howard Marks

"Whenever you find yourself on the side of the majority, it is time to pause and reflect."

-Mark Twain

"None are more hopelessly enslaved than those that falsely believe they are free."

-Goethe

"The longer the markets disobey basic rules of valuation, the bigger the opportunity for good investors to reap the benefits. Value investing works precisely because markets become dysfunctional at times."

-John Coumarianos

Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.

-Sir John Templeton

"No very deep knowledge of economics is usually needed for grasping the immediate effects of a measure; but the task of economics is to foretell the remoter effects, and so to allow us to avoid such acts as attempt to remedy a present ill by sowing the seeds of a much greater ill for the future."

- Ludwig von Mises

"People only accept change in necessity and see necessity only in crisis."

-Jean Monnet

Requiring a central bank to print money to increase government's purchasing power invariably ignites a hyperinflationary firestorm. The result through history has been toppled governments and severe threats to societal stability.

- Alan Greenspan

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

- Henry Ford

"Do you want to sell sugared water for the rest of your life? Or do you want to come with me and change the world?"

-Steve Jobs

"I'd be a bum on the street with a tin cup if the markets were always efficient."

-Warren Buffett

"The market can stay irrational longer than the investor can stay solvent."

- Keynes

"While the government struggles to save one crumbling enterprise at the expense of the crumbling of another, it accelerates the process of juggling debts, switching losses, piling loans on loans, mortgaging the future and the future's future. As things grow worse, the government protects itself not by contracting this process, but by expanding it."

-Ayn Rand, 1974

"The test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function."

- F. Scott Fitzgerald

"All our life, so far as it has definite form, is but a mass of habits - practical, emotional, and intellectual - systemically organized for our weal or woe, and bearing us irresistibly toward our destiny, whatever the latter may be."

-William James

"Men it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one."

-Charles Mackay

The greatest enemy of knowledge is not ignorance, it is the illusion of knowledge.

- Stephen Hawkings

"Give me control of a nations money supply, and I care not who makes it's laws."

- Amschel Rothchild

Illusions commend themselves to us because they save us pain and allow us to enjoy pleasure instead. We must therefore accept it without complaint when they sometimes collide with a bit of reality against which they are dashed to pieces.

- Sigmund Freud

Many of life's failures are people who did not realize how close they were to success when they gave up.